R.I.’s pandemic grant programs falling short for some businesses

Updated 12:49 p.m., Dec. 18

CHRIS PARISI, right, co-founder and leader of the Rhode Island Small Business Coalition, calls the state's grant programs to help local businesses as a failure. / PBN FILE PHOTO/RUPERT WHITELEY
CHRIS PARISI, right, co-founder and leader of the Rhode Island Small Business Coalition, calls the state's grant programs to help local businesses a failure. / PBN FILE PHOTO/RUPERT WHITELEY

PROVIDENCE – The state is making a final push this month to get what remains of its $1.25 billion federal stimulus out to local businesses before the funding is set to expire Dec. 31. Gov. Gina M. Raimondo held a significant portion of the state’s stimulus for months, waiting for more flexibility from Congress on how to spend it.

Now, some business owners and small-business advocates say a rushed process to get much-needed grant funding from the state remains cumbersome and worry time is running out for them to fully take advantage of it.

“It’s clearly been a failure where these programs that are supposed to help small businesses are not providing the help they need,” said Chris Parisi, co-founder and leader of the Rhode Island Small Business Coalition and founder and president of Providence-based marketing firm Trailblaze Marketing. “We’re hearing all the stories in the trenches and we’re not standing on a pedestal. It’s disheartening.”

Bob Burke, owner of Pat au Feu Restaurant in Providence, is equally frustrated. “[Raimondo] held the money and the reason they’re dishing out the $100 million like a dam broke [is because] this should have been out in August, September and October,” he said. “Right now, [the state is] doing a panic offload of money because they have to return the money on Dec. 31.”

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Parisi said the new “Rhode Island on Pause” grant program has several flaws. He said when the “pause” applications were launched at the end of November, it was based on businesses’ net income, which is taxable income. It took RISBC’s advocacy for the state to change the requirement to 4% of gross revenue, Parisi said.

Plus, the state, Parisi said, is asking businesses to provide gross income from September 2020, a month in a year in which businesses – restaurants especially – have lower income than normal because of the health crisis. Parisi said the state should change its financial requirement by asking businesses what they made in November and December 2019 to show what the organizations would have made if they weren’t in a pandemic.

Additionally, the pause grant application is a “conditional survey,” Parisi said, where businesses might have to answer up to 35 questions, depending on what type of operation it is.

“It could have been five questions where, ‘are you this type of business’ or something that proves there’s a business that’s active, show sales and, boom, they can confirm it … write a check and keep it simple,” Parisi said.

R.I. Division of Taxation spokesman Paul Grimaldi said Thursday that by leveraging the September 2020 date as the benchmark for the pause grants, the department wanted to make the grant as “easy to administer and verify as possible.” Grimaldi added the department uses a May year-over-year comparison, which is a close proxy to the pause period. Waiting to use November’s tax receipts would have delayed grant distribution, he said.

JONATHAN VAN HEES, co-owner of Strike F/X Pro Shops LLC, was denied a pause grant because half of his Rhode Island bowling-retail operation is in Massachusetts, and didn't find out until he was halfway through the application. / COURTESY STRIKE F/X PRO SHOPS LLC
JONATHAN VAN HEES, co-owner of Strike F/X Pro Shops LLC, was denied a pause grant because half of his Rhode Island bowling-retail operation is in Massachusetts, and didn’t find out until he was halfway through the application. / COURTESY STRIKE F/X PRO SHOPS LLCperio

Some owners said that their operations inadvertently impacted by the pause were ineligible for the grants because their physical operations didn’t meet specific criteria.

Jonathan Van Hees, co-owner of Strike F/X Pro Shops LLC, cannot currently operate his three Rhode Island-based bowling-retail stores in AMF Cranston Lanes, East Providence Lanes and Old Mountain Lanes Inc., in South Kingstown, because the state-mandated “pause” requires bowling centers to be closed through at least Dec. 20.

Van Hees, who also owns three such shops in Massachusetts where the company is incorporated, began the process of applying for a “pause” grant and noticed halfway through the application that getting financial help would be problematic. Van Hees said the state’s application began asking if his business in part operates outside of Rhode Island and he checked “yes,” which disqualified him from pause-grant consideration.

However, Division of Taxation’s main “pause” grant webpage, as of Thursday, does not state upfront that Rhode Island businesses that have out-of-state operations were ineligible for grant funding, even though Van Hees’ operation – which has only 10 employees total across six stores – met the criteria that the state was asking for.

“When you’re going through all the applications, the last thing you want is something to sneak up and surprise you, and that’s exactly what happened here,” Van Hees said.

Joseph Mastrati, owner of Cranston-based sports-retail store 2nd Time Around Sports, said he was denied a potential pause grant because retail stores were not closed during the pause, even though all amateur and youth sports are not occurring during the pause.

Mastrati said he did receive a loan through the U.S. Small Business Administration’s Paycheck Protection Program, but he didn’t use it because no one is shopping at his stores. Mastrati’s operation, which downsized from three locations to two due to the pandemic, said his year-to-year Black Friday sales have plummeted by 80% because of no sports occurring.

“No one is buying hockey equipment. Maybe a mini stick for a Christmas gift, but no one is buying any helmets, gloves, sticks, skates,” Mastrati said. “I’m not going to rely on the state anymore. It takes time to apply for these applications, [and] you just get rejected. I feel like [Raimondo] was kicking me while I was down.”

Even if businesses are eligible for grants, either the grants don’t make them whole or strings are attached to them, some businesses owners say.

Dianne Miguel, treasurer for Warwick-based travel agency Global Excellence Travel Inc., did receive a PPP loan through the federal Small Business Administration and last month received a $20,000 Restore RI grant from R.I. Commerce Corp. However, Global Excellence’s revenue, which Miguel said averaged more than $1 million per month in sales, dropped by 90% from 2019 to this year because residents were urged not to travel.

“We’re struggling here,” she said.

Van Hees said he had a chance to apply for a $150,000 federal loan at 3.5% interest to further support Strike F/X. But he didn’t pursue it for fear his business would continue to “bleed out money” if Rhode Island’s bowling industry is closed multiple times – as it has thus far – and paying interest while closed is worthless.

MARK S. DEION, president of Warwick-based business-strategy firm Deion Associates & Strategies Inc. who also works closely with the Rhode Island Small Business Coalition, says all grants received by businesses are taxable, but the state is not properly notifying businesses of that. / COURTESY DEION ASSOCIATES & STRATEGIES INC.
MARK S. DEION, president of Warwick-based business-strategy firm Deion Associates & Strategies Inc. who also works closely with the Rhode Island Small Business Coalition, says all grants received by businesses are taxable, but the state is not properly notifying businesses of that. / COURTESY DEION ASSOCIATES & STRATEGIES INC.

Mark S. Deion, president of Warwick-based business-strategy firm Deion Associates & Strategies Inc., said that the state is also not making clear upfront that any grant funding businesses receive is taxable. R.I. taxation officials confirmed the grants are taxable, based on Internal Revenue Service guidance.

Deion said the grant documents, including emails that acknowledge the business was awarded grants, either note deep in an attached FAQ document or on a back page of a five-page email informing businesses that taxes are to be paid on grants, or omits that fact altogether.

As a result, some businesses may be unaware that they could get a surprise from Uncle Sam in 2021 if they have spent all of their received grant money, Deion said, and also unclear as to how much businesses would be taxed.

“One would always say that you need to read the fine print on all documents you get. But, there really was no effort on the part of the [Raimondo] administration and the R.I. Division of Taxation to actually tell people that these were taxable,” Deion said. “There may be one line here or one line there saying it’s taxable. But there was no real effort to say upfront that this was taxable.”

Additionally, both Parisi and Burke said that even if businesses obtain the grant money, it still has to be spent on expenses incurred by the operations by Dec. 31 per requirement by the federal government.

In other words, businesses have to rush to spend the money some have waited weeks to receive, if they have received it, or lose it at the end of the year.

“It’s chaos,” Parisi said.

BOB BURKE, owner of Pot au Feu Restaurant in Providence, said he wrote about four letters to state officials offering them guidance on improving the grant process to help the small-business community, but he said he's heard no response. / PBN FILE PHOTO/MICHAEL SALERNO
BOB BURKE, owner of Pot au Feu Restaurant in Providence, said he wrote about four letters to state officials offering them guidance on improving the grant process to help the small-business community, but he said he’s heard no response. / PBN FILE PHOTO/MICHAEL SALERNO

Burke said he’s written several letters since the pandemic started to the governor, R.I. Commerce and the R.I. Department of Health. Along with suggested changes to the pause grant process, Burke also wrote asking if the state was willing to invest money in certifying businesses that met COVID-19 safety requirements.

The state’s response was silence, Burke said.

“I don’t know why they think they understand the inner workings of businesses when they clearly don’t understand and they’re not willing to sit down with them to have a phone conversation or Zoom call with the people who actually run them,” Burke said. “I think the governor thinks that because she eats in restaurants, she understands how they work. That’s not how it goes.”

Burke was recently denied funding through the state’s Business Adaptation grant, which would have helped pay for renovations to his restaurant to adapt to the pandemic. He says he wasn’t told why and was given less than 24 hours’ notice to apply for another state-supported grant before it was set to expire Dec. 15.

“This is the kind of out of touch email no business would ever send,” Burke said. “Pouring salt on an already fresh wound.”

R.I. Commerce spokesman Matt Sheaff says the quasi-public agency has spoken directly with Burke about his concerns. In an email Thursday, Sheaff said that applicants are denied funding because either the businesses didn’t meet CARES Act eligibility requirements or other applicants ranked higher in the competitive application process. R.I. Commerce is still working with applicants who were denied grants to see if they qualify for funding from alternative programs, Sheaff said.

“We know there is tremendous need in the business community during this crisis and Commerce is exploring additional ways to help businesses when there are future rounds of federal stimulus funding,” Sheaff said.

Moving forward, Parisi hopes the coalition will have better luck addressing small-business concerns with the General Assembly because he believes Raimondo is “not listening.”

With the prospects of a long winter for local businesses on the horizon, Parisi said time is of the essence to support small business.

“People want to give up, so we’re trying to give people hope,” he said. “But we’re running out of hope and running out of time.”

(SUBS 34th paragraph to add R.I. Commerce comment on communication with Burke.)

James Bessette is the PBN special projects editor, and also covers the nonprofit and education sectors. You may reach him at Bessette@PBN.com. You may also follow him on Twitter at @James_Bessette.

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